November 25, 2020
A contractor’s business bank account is an essential part of the working toolkit. Pick the wrong one, and you could end up wasting hours, energy and money disentangling accounting blunders. Pick the right one, and you’ll wonder why everyone keeps complaining about “doing the numbers”. 🔢
As a limited company, you will be required to use a separate business account. If you’re a sole trader, you are technically allowed to use your personal bank account - although their terms and conditions usually state that you can’t use a personal account for business transactions. If you’re offsetting expenses against your income, then the best strategy is to open a business bank account.
A business bank account will allow you to keep track of every day transactions, pay for goods and services and track your returns in order to pay tax. Although the banking services are pretty straightforward, you may be surprised at how complex and expensive certain banks can make it; which is why it pays to do a bit of research and pick the best small business bank account for your company.
When picking a business account, you want to try and pay as little as possible in fees and choose one that corresponds with the features you need. Some bank accounts will offer an arranged overdraft, online banking, interest, account software integration and some even allow you to issue invoices. Many banks will also offer different types of accounts depending on whether you’re a startup, sole trader or large company. Some will allow you to open your account from your computer or mobile phone, while others will require you to enter the physical bank branch.
When opening an account, you will need the following documents ready:
The main thing to look out for is fees. Contrary to a personal bank account, many business bank accounts will charge you fees for direct debits, international transactions, overdraft charges and manual payments. As a contractor or small business, these fees can quickly add up and severely impact your business revenue. Keepin mind that if you are currently using a business banking service which you aren’t satisfied with, you can easily switch your business account in 7 days using the Current Account Switch Service.
Starling bank has been named the best business banking provider for several years in a row for a good reason: it’s one of the best. For contractors, they offer a high-quality online business banking alternative to the high street. The account is very straightforward to use and you can easily open one through your computer or mobile phone. The main benefit with Starling Bank is that they hardly charge any fees and anything they do charge are displayed upfront - such as international payments or Post Office deposits.
You will need to have a Starling personal account in order to open a business account, and you will need to be trading for at least 18 months in order to have an overdraft. You also need to have the most control over the business since the account doesn’t work for partnerships. Your deposits are protected up to £85k, and you can also subscribe to the Starling Bookkeeping Toolkit to help you with invoicing, receipts, tax and all the rest. These are some of the reasons why the Starling business bank account works especially well for contractors.
Tide bank is another good alternative to traditional business banking services. They don’t charge any monthly or annual fees, and you can open your account from your phone in 5 minutes. They do charge 20p for Faster Payments and there is a £1 ATM withdrawal fee, but they also allow you to add 35 team members per account which is handy if you have employees or split expenses with other members of your organisation.
Tide bank can also be integrated with FreeAgent, an accounting software. The main negative is that Tide is an e-money entity rather than a bank, which means they can’t offer credit if that’s something you’ll need.
Cashplus is another business banking alternative that doesn’t require interviews or paper forms. They are specialised in business banking which means they offer advantages specifically for contractors. There are no transaction fees, although they do charge £69 per year.
Cashplus is also great if you have poor credit and are looking to build a credit history, and they also do business overdrafts and cash advances. The business account also allows you to add USD and EUR if you wish, which makes it easy and practical if you take international payments.
If you prefer going to a physical bank branch, Metro Bank is a well-known bank that offers accounts to contractors and small businesses. They have the added benefit that branches are open outside working hours. The bank also issues specialised business accounts for startups and SMEs with a turnover of under £2 million, and they don’t charge any monthly fees if your balance is over £5,000. You get a certain amount of free UK transactions, then it’s 30p per transaction.
They are cheaper than other high street business bank accounts, which makes them attractive to contractors.
Barclays offers a wide range of business banking options depending on the size of your business. For example, startups get the first 12 months for free, and if you have a turnover of under £400k you are offered two different price plans. Barclays also offer expert business advice, and a loyalty discount of between 5% and 50% based on how long you keep your account open with them.
Yorkshire Bank also specialises in business banking and offer great terms to new companies. The first 25 months are free if you’re just starting up and have a turnover of less than £2 million. They then charge £6.5 per month and have small fees for certain transactions. They also offer credit and overdrafts for business bank account holders.
It’s easy to get overwhelmed with the large number of options available for business banking, which is why it’s good to do your research and be clear on what features you need most. If you know you’ll need credit or overdrafts, then you may not want to pick Tide. If you have a poor credit score, it’s best to pick a bank like Cashplus that can help you build history.
Once you have your business bank account, what’s next? Taking payments! At Pomelo Pay, we help contractors take easy payments using QR codes and payment links; we integrate with all types of business bank accounts and you won’t even have to take a card reader with you!
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